Trial will define fair rate for standards-based patents used in Windows and Xbox.

How much is a patent really worth? That’s one of the most contentious questions in the technology patent wars. And it can be especially difficult to answer when the patent is one that’s tied to an industry standard.

The question of what's fair to charge for a license to a standards-essential patent may finally get an answer in a trial beginning at 9am PT today in Seattle federal court. The US District Court case stems from a lawsuit Microsoft filed against Motorola (now owned by Google) on November 9, 2010 (PDF). The company accused Motorola of violating the promises it made to standards organizations to license patents at fair and reasonable rates.

Motorola Mobility bases much of its patent litigation and licensing strategy on H.264 video and Wi-Fi patents that are incorporated into industry standards codified by groups such as the IEEE (Institute of Electrical and Electronics Engineers) and the ITU (International Telecommunications Union).

This makes it easier to get licensing fees from competitors, because companies are obligated to comply with industry standards and thus, out of necessity, use Motorola’s patented technology. Motorola has struck deals with more than 50 companies including Nokia, Ericsson, RIM, Samsung, LG, and HTC.

Motorola attempts to charge a standard rate of 2.25 percent of the retail cost of a device, but that likely gets negotiated downward. Microsoft and Apple have both refused to pay license fees on the iPhone, Windows PCs, and the Xbox, saying Motorola's 2.25 percent demand violates its commitments under the FRAND (fair, reasonable, and non-discriminatory) principle. In exchange for having its patents included in industry standards, Motorola is required to license them on non-discriminatory terms and at rates that are fair and reasonable.

The company’s stance has not changed in the months since it was purchased by Google, which acquired Motorola largely because of its patent portfolio. That's not surprising, as Google has argued that Apple and Microsoft have attacked Android with bogus patents and may want to level the playing field. Apple, of course, won a $1 billion judgment against Samsung for patent infringement in Android phones, and Microsoft collects regular licensing fees from nearly every Android vendor except Motorola. There are also various pending lawsuits in which Microsoft accuses Motorola of infringing its patents.

Neither Microsoft nor Apple base their assault on patents subject to FRAND restrictions, and each says Motorola is abusing the standards process. Both companies sued Motorola, claiming it has violated its obligations to standards bodies, but last week Apple’s suit was thrown out after the iPhone maker suggested it may not be willing to abide by a court-defined licensing rate if it’s not low enough. The FTC is also looking into whether Google is misusing standards-based patents through its ownership of Motorola.

Microsoft is proposing to pay $1.21 million per year to Motorola, but it seems ready to accept whatever rate the court says is fair and reasonable. In part, that's because any court-ordered rate won't be as high as Motorola wants. Microsoft has complained Motorola’s 2.25 percent demand would amount to $4 billion a year. In June, Motorola offered to lower its price to 50 cents per Windows PC, but did not budge on its demand of 2.25 percent for the Xbox 360. Microsoft says the demands are still too high, and it points to MPEG LA, a patent pooling organization that charges Microsoft only two cents per unit for licenses to use H.264 technology in Windows.

The trial has two parts. The first is scheduled to last from today until November 21 and will focus on setting a reasonable rate for Motorola’s patents. In the weeks or months after its conclusion, Judge James Robart will decide on a number, or perhaps a formula for determining a fair license rate. The second part of the trial, expected to be held in the spring, will decide whether Motorola violated its agreements with standards bodies.

As noted by the Wall Street Journal, Robert “could set a percentage, a formula or a set of factors to define a reasonable and nondiscriminatory patent royalty.” While the decision would only have an immediate effect on Microsoft and Motorola, it could help provide guidance to other companies in future FRAND negotiations and lawsuits.

With the trial getting underway today, let’s take a closer look at the two sides’ arguments. We’ll start with Microsoft.

Microsoft: These patents are barely used in Windows and Xbox

Microsoft argues that charging 2.25 percent of the retail cost of a device is unreasonable because Motorola’s patented technology is used in only limited ways in Windows and the Xbox 360.

A pre-trial brief filed by Microsoft last week argues (PDF) that Motorola's wireless and video patents are used by Microsoft in ways that are barely noticed by an average user of the Xbox 360 or Windows. Out of 16 Motorola patents essential to the H.264 standard, 14 cover interlaced video, Microsoft states.

“Computers display video in progressive format, meaning that the entire picture is created line by line,” Microsoft states. “Progressive content is encoded by processing a picture’s even and odd lines together (‘frame coding’). An alternative format is ‘interlaced video,’ which involves encoding odd and even lines separately (‘field coding’).”

The upshot according to Microsoft is that “Interlaced video is a relic of analog over-the-air broadcast television, where there were advantages in capturing and displaying the even and odd lines of the picture separately. Interlaced video is rarely transmitted over the Internet, but in order to be fully compliant with certain profiles and levels of H.264, a product must support both progressive and interlaced video." Microsoft products like Windows and Xbox support both formats, but interlaced video is rarely encountered.

As for Windows, Microsoft said, “Motorola and its experts have gone to great length to try to find examples of interlaced content, such as from pirate Web sites and obscure test clips, that Windows can play.” On the Xbox, video games and standard DVDs do not use H.264. Microsoft acknowledged the use of interlaced video on the Xbox through AT&T’s U-verse TV service, but said that “only a tiny percentage of Xbox users ever obtained the software for U-verse."

There are two H.264 patents from Motorola not limited to interlaced video, but one of them has expired and the other expires four months from now, Microsoft wrote. “Like the interlaced patents, these patents simply involve choices... for which alternatives existed that could have been implemented in the standard instead,” Microsoft wrote.

On the wireless side, Motorola asserts 24 patents related to the 802.11 Wi-Fi standards, 11 of which are allegedly used by the Xbox. “However, even the larger group of 24 contains no patent that has much value, as there were available alternatives that the drafters of the 802.11 standard could have adopted instead of these patents,” Microsoft wrote. “Moreover, these patents are either not used by Microsoft’s Xbox or are not relevant to its normal operation.”

Xbox consoles were equipped only with wired Ethernet between 2001 and 2010, although a separate adapter allowing Wi-Fi connections from the Xbox was sold beginning in 2004. A new version of the 360 that launched in June 2010 contained wireless connectivity through a Marvell chipset without need for an adapter.

The 11 wireless patents that apply to the Xbox include two that have expired, two relating to peer-to-peer communication, three related to security, one related to the current 802.11n standard, and three related to earlier 802.11n standards, Microsoft said.

Peer-to-peer communication “is not used in normal operation when an Xbox connects to a wireless access point,” Microsoft says. The threesecuritypatents are likewise called irrelevant because the “Xbox implements its own end-to-end encryption of any sensitive data, independent of any security provided by the 802.11 standards.” As for the other 802.11 patents, only the one specifically related to 802.11n holds any significant value to the Xbox console. That Motorola patent covering 802.11n technology used in the Xbox expires in May 2013, Microsoft said.

Despite its argument that Motorola’s patents are barely relevant to Windows and Xbox, Microsoft is offering to pay $1.21 million to cover license fees for the year 2012. In coming up with its estimate, Microsoft points to the prices charged by the MPEG LA patent pool and the Via Licensing Corporation patent pool covering 802.11 patents, which includes a handful of companies like NTT and LG. Microsoft also notes the $3 to $4 price for Marvell chips while arguing that Motorola's attempt to calculate a royalty based on the entire price of an Xbox is unreasonable.

Microsoft proposes paying Motorola $474,000 for its H.264 patents and $736,231 for its wireless patents. “For 2012, Microsoft has paid $13 million in royalties to the MPEG LA H.264 pool,” Microsoft says. “If Motorola were a licensor in the MPEG LA H.264 pool, Motorola’s share of the 2012 pool royalties paid by Microsoft would have been $474,000.”

When will the madness end? Despite all of the headache this causes for the current big players, they will never lobby to fix this mess. They would rather have patent wars with known players and established companies then risk the entry of new competitors into the market.

Bill Gates 1991: "If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete standstill today. ... The solution is patenting as much as we can. A future startup with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high. Established companies have an interest in excluding future competitors."

In their calculation, it is better for the big players to have stagnation and reliable profits than risk losing market share to a nimble and innovative startup. This is why the patent system is so broken, it encourages stagnation, not innovation as was intended.

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

@TimTheTaxMan: The status quo always favors the incumbents, because the incumbents have already been organized around it. Therefore a big company, like MS and Motorola, don't want to change anything.

The problem is that the status quo normally involves caving in, settling, and cross licensing, which means the fact that the trial is going to change things is bad for Motorola.

Innovation was never at risk here; it's not as if the nimble and innovative startup was ever a risk to Microsoft, after all, or Motorola. It was the large and well established companies like Apple and Google that broke Motorola's business, after all (and Palm, Nokia, HTC, LG, Microsoft, and Sony while we're at it).

@TimTheTaxMan: The status quo always favors the incumbents, because the incumbents have already been organized around it. Therefore a big company, like MS and Motorola, don't want to change anything.

The problem is that the status quo normally involves caving in, settling, and cross licensing, which means the fact that the trial is going to change things is bad for Motorola.

Innovation was never at risk here; it's not as if the nimble and innovative startup was ever a risk to Microsoft, after all, or Motorola. It was the large and well established companies like Apple and Google that broke Motorola's business, after all (and Palm, Nokia, HTC, LG, Microsoft, and Sony while we're at it).

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

I think Microsoft has a point, though; Motorola would normally get $0.09 per Marvell chip, making their request for $4 or so per XBox or $2 per Windows license seem absurd.

Especially so if Microsoft had structured it as following:XBox + Windows without infringing patents = $0DLC pack for $5 to enable WiFi = $0.10DLC pack for $5 to enable H.264 = $0.10

So now Microsoft owes $0.20 to Motorola instead of $6?

Quote:

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

There is no wrong. This isn't a morality play. Motorola wants to maximize the value of their patent portfolio because their smartphone business is crashing. Microsoft wants to minimize the value of their license fees to maximize their profits.

It's no different than haggling at a car dealership, excepting that Motorola may have done a few things illegal in trying to "double dip" since the HW was already licensed.

This case is stupid. Why didn't Microsoft go through the ITC's official method? They actually have a set process for negotiating FRAND rates between two companies that can't agree on a price. Microsoft(and Apple previously) hasn't even tried that. Instead they're going to the courts to decide something that shouldn't need a court case at all. Motorola's price is unreasonable, but there is a better method to negotiate the price. FRAND has so many oversights at the ITC that as long as you actually use the tools they provide you, you'll probably never have to worry about being ripped off because of the price.

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

I think Microsoft has a point, though; Motorola would normally get $0.09 per Marvell chip, making their request for $4 or so per XBox or $2 per Windows license seem absurd.

Especially so if Microsoft had structured it as following:XBox + Windows without infringing patents = $0DLC pack for $5 to enable WiFi = $0.10DLC pack for $5 to enable H.264 = $0.10

So now Microsoft owes $0.20 to Motorola instead of $6?

Quote:

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

There is no wrong. This isn't a morality play. Motorola wants to maximize the value of their patent portfolio because their smartphone business is crashing. Microsoft wants to minimize the value of their license fees to maximize their profits.

It's no different than haggling at a car dealership, excepting that Motorola may have done a few things illegal in trying to "double dip" since the HW was already licensed.

It is morally wrong to sell a device you know violates patents because you do not want to pay the rate... I am interested in seeing what information is released about the terms discussed between Moto and MS. This is where it will get interesting - I agree Moto may be attempting to double dip, BUT we will not really know until this stuff is in the open...

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

I think Microsoft has a point, though; Motorola would normally get $0.09 per Marvell chip, making their request for $4 or so per XBox or $2 per Windows license seem absurd.

Especially so if Microsoft had structured it as following:XBox + Windows without infringing patents = $0DLC pack for $5 to enable WiFi = $0.10DLC pack for $5 to enable H.264 = $0.10

So now Microsoft owes $0.20 to Motorola instead of $6?

Quote:

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

There is no wrong. This isn't a morality play. Motorola wants to maximize the value of their patent portfolio because their smartphone business is crashing. Microsoft wants to minimize the value of their license fees to maximize their profits.

It's no different than haggling at a car dealership, excepting that Motorola may have done a few things illegal in trying to "double dip" since the HW was already licensed.

It is morally wrong to sell a device you know violates patents because you do not want to pay the rate... I am interested in seeing what information is released about the terms discussed between Moto and MS. This is where it will get interesting - I agree Moto may be attempting to double dip, BUT we will not really know until this stuff is in the open...

That's just it, you can't say one is more morally right until both sides have had their explanations.

Actually, no - the court is not going to decide this. Indications seem to be that the courts not only shouldn't be a part of this but have no desire to be. Have you seen the Motorola Wisconsin FRAND situation?

"In light of ETSI’s policy purpose and philosophy on standardization, a patentee has the obligation, after having provided the FRAND declaration, to negotiate in good faith with a third party requesting a license for the royalty rate under FRAND terms. On the other hand, the potential licensee or a third party concurrently owes the obligation to properly request for a license to use the standard essential patents, and negotiate with the patentee regarding the royalty rate. Prohibiting a patentee from seeking injunction against the unilateral use of the standard essential patents without requesting the patentee for a license would result in offering more protection to the potential licensee or a third party in bad faith and in violation of the fundamental nature of the patent system."

Overall, this appears to be a quite balanced perspective, and not at all the rationalisation of a ‘rogue state’. The Court seems simply to have been unwilling to allow Apple to manipulate Samsung’s FRAND obligations as leverage to achieve a favourable outcome, any more than it would have allowed an SEP-holder to abuse its monopoly power to extract an unreasonably high royalty.

It is highly unlike it will be any different here.

This is Microsoft and Apple, in conjunction, continuing to try to attack Google. Why this hasn't been investigated by FTC Antitrust investigators is beyond me.

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

I think Microsoft has a point, though; Motorola would normally get $0.09 per Marvell chip, making their request for $4 or so per XBox or $2 per Windows license seem absurd.

Especially so if Microsoft had structured it as following:XBox + Windows without infringing patents = $0DLC pack for $5 to enable WiFi = $0.10DLC pack for $5 to enable H.264 = $0.10

So now Microsoft owes $0.20 to Motorola instead of $6?

Quote:

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

There is no wrong. This isn't a morality play. Motorola wants to maximize the value of their patent portfolio because their smartphone business is crashing. Microsoft wants to minimize the value of their license fees to maximize their profits.

It's no different than haggling at a car dealership, excepting that Motorola may have done a few things illegal in trying to "double dip" since the HW was already licensed.

It is morally wrong to sell a device you know violates patents because you do not want to pay the rate... I am interested in seeing what information is released about the terms discussed between Moto and MS. This is where it will get interesting - I agree Moto may be attempting to double dip, BUT we will not really know until this stuff is in the open...

Once again clueless. Morally wrong? Wow. You probably violate patents going around your daily life. Are you morally wrong to live?

You make a device with standards patents. You make it and expect to pay as much as anyone else. What Moto is doing is a patent shakedown.

Imagine a world where everyone pays 2.25% of the value of the wholesale price for every patent. Lets say H.264 video needs at least a hundred patents (the stuff it does is crazy complicated and patented), lets say you wanted to add WI-FI, another 60 or so, lets say you wanted to add wireless, another hundred, and has a screen, another 50 or so. Software, another few hundred. Together maybe 600 patents covered...so lets say you wholesale it for $100 * 1350% = $135,000 to make the item, oh and add the $100. $135,100.00 Yeah nuts. Stupid crazy broken nuts.

Oh an how are you going to negotiate those patents before it comes out? Yeah right. By the time you release it, it would be years old because someone decided to drag their feet on a standards patent negotiation.

You make a device with standards patents. You make it and expect to pay as much as anyone else. What Moto is doing is a patent shakedown.

Imagine a world where everyone pays 2.25% of the value of the wholesale price for every patent. Lets say H.264 video needs at least a hundred patents (the stuff it does is crazy complicated and patented), lets say you wanted to add WI-FI, another 60 or so, lets say you wanted to add wireless, another hundred, and has a screen, another 50 or so. Software, another few hundred. Together maybe 600 patents covered...so lets say you wholesale it for $100 * 1350% = $135,000 to make the item, oh and add the $100. $135,100.00 Yeah nuts. Stupid crazy broken nuts.

Which part is the shakedown, where Microsoft tried to get a court to rule on something it's not supposed to be involved in (in multiple countries which it has been shot down in), or the part where Microsoft has refused to negotiate which is part of how FRAND negotiations are defined?

This isn't a patent shakedown, you're just full of misdirection and misinformation. Thy can set whatever price for the patents they want - and guess what? 2.25% is LESS than the $40 apple wants or the $12-20 that Microsoft wants.

Actually, no - the court is not going to decide this. Indications seem to be that the courts not only shouldn't be a part of this but have no desire to be. Have you seen the Motorola Wisconsin FRAND situation?

That is a very...selective...view of the case. The WI court tossed it because one of the parties made it clear they wouldn't consider any rate or ruling to be binding, which led the court to the conclusion that they were simply wasting the court's time. Why set a rate if one says they reserve the right to not accept it?

This case is very different because Microsoft has stated they will accept whatever rate the court sets, without providing exceptions. Everyone already agrees that Google must offer the license, and that they agreed to the RAND terms of the standards bodies...so as they say, all we're doing now is haggling about the price.

Think of an average cell phone that probably includes 1000's of patented components/interfaces/designs.

If every patent holder received say 25c (which doesn't sound much), that might be > $250 in patent fees alone! How much would that phone sell for? >$1000.

Patents really stifle the whole industry - unless you are a mega company and can trade patents, you're screwed. How does a small company with innovative ideas ever exist today?

And what is a 'fair' price for a license? Is it fair that one patent is worth more than another? Perhaps each company should have to place an R&D price tag on developing the patented concept and the price should be proportional. That to me sounds much fairer, but our capitalist society is not about fair, so perhaps we simply let the court decide each case in individual merit. Either way, it's never good for the consumer, as patents limit choice.

Random idea which will be shot down: Perhaps a better way is to limit the lifetime of technology patents to say 5 years, after which anyone can use them. That gives companies a momentary edge, during which anyone can still negotiate a license, but ultimately benefits everyone and saves a lot of legal wrangling.

You make a device with standards patents. You make it and expect to pay as much as anyone else. What Moto is doing is a patent shakedown.

Imagine a world where everyone pays 2.25% of the value of the wholesale price for every patent. Lets say H.264 video needs at least a hundred patents (the stuff it does is crazy complicated and patented), lets say you wanted to add WI-FI, another 60 or so, lets say you wanted to add wireless, another hundred, and has a screen, another 50 or so. Software, another few hundred. Together maybe 600 patents covered...so lets say you wholesale it for $100 * 1350% = $135,000 to make the item, oh and add the $100. $135,100.00 Yeah nuts. Stupid crazy broken nuts.

Which part is the shakedown, where Microsoft tried to get a court to rule on something it's not supposed to be involved in (in multiple countries which it has been shot down in), or the part where Microsoft has refused to negotiate which is part of how FRAND negotiations are defined?

This isn't a patent shakedown, you're just full of misdirection and misinformation. Thy can set whatever price for the patents they want - and guess what? 2.25% is LESS than the $40 apple wants or the $12-20 that Microsoft wants.

Whoa....isn't that what courts are for? To negotiate when people can't find a middle ground? It's not that Microsoft won't negotiate...what is offered isn't fair. Yeah thanks for coming out. Thanks for understanding FRAND. Thanks for understanding the usefulness of standards. Thanks for understanding progress.

Whoa....isn't that what courts are for? To negotiate when people can't find a middle ground? It's not that Microsoft won't negotiate...what is offered isn't fair. Yeah thanks for coming out. Thanks for understanding FRAND. Thanks for understanding the usefulness of standards. Thanks for understanding progress.

It is a shakedown.

Not in this situation. The ITC has a special mediation program specifically for issues with FRAND pricing. Microsoft has not used this. Microsoft decided instead to jump straight to suing.

Motorola is indeed a powerful company with many patents under its belt..

But this behavior is seriously making them sound like they're a Patent troll.

Well, there are some striking differences between Motorola and a patent troll.

First, Motorola makes and sell products using those patents, and, by virtue of actually making things, have to license patents itself. In fact, one of the reasons Apple jumped out of the lawsuit Apple itself had opened against Motorola is that it had, itself, patents that Motorola needs, and the RAND requirements to which Motorola *and* Apple must abide specifies Apple must reciprocate the patent licensing.

Second, Microsoft was aware from the start that it was infringing the patents, because the standard it was following clearly dictates that Motorola's patents (among others) were required to implement the standard. Microsoft went ahead with the full knowledge that it had to pay up for these patents, instead of being ambushed by patents no one has ever heard of, which is how patent trolls work.

Third, and most importantly, patent trolls demand licensing under the threat of lawsuit, and sue if they don't get their way. Neither of these things happened! Motorola initiated a negotiation for the licensing of standard-required patents Microsoft knew of, never threatened with lawsuit, and MICROSOFT, not Motorola, sued.

Oh, and, by the way, it asked a judge from it's home turf to set a patent rate for the whole world.

I've yet to see anything saying Moto isn't offering these at the same rates to others who won't cross-license. Seems fair to me.

Fair != free.

Please read the article. Here I will help you out.

Here is what Microsoft thinks if fair.

"Despite its argument that Motorola’s patents are barely relevant to Windows and Xbox, Microsoft is offering to pay $1.21 million to cover license fees for the year 2012. In coming up with its estimate, Microsoft points to the prices charged by the MPEG LA patent pool and the Via Licensing Corporation patent pool covering 802.11 patents, which includes a handful of companies including NTT and LG. Microsoft also notes the $3 to $4 price for Marvell chips while arguing that Motorola's attempt to calculate a royalty based on the entire price of an Xbox is unreasonable.

Microsoft proposes paying Motorola $474,000 for its H.264 patents and $736,231 for its wireless patents. “For 2012, Microsoft has paid $13 million in royalties to the MPEG LA H.264 pool,” Microsoft says. “If Motorola were a licensor in the MPEG LA H.264 pool, Motorola’s share of the 2012 pool royalties paid by Microsoft would have been $474,000.”"

If this shakedown is allowed then there will be patent wars that will see litigation everywhere, if the court rules that anything is fair and reasonable. Nothing made today in electronics can be made without using someone else's patents. The whole purpose of standard associations will be broken and the future will be transformed into giant patent pools with mutual assured annihilation. Then someone will mess that up.

If the courts muck this up. Then the government needs to step in to clean up the mess. Maybe that is Google's end game?

Didn't some court somewhere throw a case out, specifically because the price were meant to be negotiated at the "frand table" and not in court?

More or less. I think the judge actually said that, but the Apple vs Motorola case was thrown out when Apple stated that the judge could tell Motorola how much it could charge, but Apple did not feel obliged to actually pay whatever the judge set.

As in, if it's cheap enough, ok, Apple licenses it. If it's not cheap enough, then Apple doesn't license it after all.

At which point the judge told Apple to take a hike, in his own legalese way.

There's speculation that Apple's attitude might have been precipitated by Motorola pointing out that, the same contract that said it must license it's patents in FRAND also said the licensee (ie, Apple) must *reciprocate* licensing. Apple isn't exactly interested in reciprocating anything in these patent battles.

Actually, no - the court is not going to decide this. Indications seem to be that the courts not only shouldn't be a part of this but have no desire to be. Have you seen the Motorola Wisconsin FRAND situation?

That is a very...selective...view of the case. The WI court tossed it because one of the parties made it clear they wouldn't consider any rate or ruling to be binding, which led the court to the conclusion that they were simply wasting the court's time. Why set a rate if one says they reserve the right to not accept it?

This case is very different because Microsoft has stated they will accept whatever rate the court sets, without providing exceptions. Everyone already agrees that Google must offer the license, and that they agreed to the RAND terms of the standards bodies...so as they say, all we're doing now is haggling about the price.

If only they were haggling about the price. What actually happened is this:

1. Microsoft made a product using a standard that clearly indicates Motorola has some essential parts of.2. Microsoft never attempts to license the patents.3. Motorola sends a letter to Microsoft saying "Hey, about those licenses you should have got from us, we'd like to talk about them. Or standard opening offer is %2.25, what says you?"4. Microsoft sues Motorola.

There's speculation that Apple's attitude might have been precipitated by Motorola pointing out that, the same contract that said it must license it's patents in FRAND also said the licensee (ie, Apple) must *reciprocate* licensing.

Random idea which will be shot down: Perhaps a better way is to limit the lifetime of technology patents to say 5 years, after which anyone can use them. That gives companies a momentary edge, during which anyone can still negotiate a license, but ultimately benefits everyone and saves a lot of legal wrangling.

That's how it works, y'know? Why do you think the article mentions so many "expired patents"?

@TimTheTaxMan: The status quo always favors the incumbents, because the incumbents have already been organized around it. Therefore a big company, like MS and Motorola, don't want to change anything.

The problem is that the status quo normally involves caving in, settling, and cross licensing, which means the fact that the trial is going to change things is bad for Motorola.

Innovation was never at risk here; it's not as if the nimble and innovative startup was ever a risk to Microsoft, after all, or Motorola. It was the large and well established companies like Apple and Google that broke Motorola's business, after all (and Palm, Nokia, HTC, LG, Microsoft, and Sony while we're at it).

I disagree. Once they reach a certain size companies start to get a negative economy of scale in the innovation department. Everything needs to go though many layers of approvals and management just wants a stable status quo. Look at Microsoft the last big product they introduced that actually did well was the Xbox and that was over 10 years ago. Their bread and butter, Windows and Office, have been around for over 20 years. I wouldn't call that being an innovative company. In fact, almost their entire business model is geared around preventing competition in office software and operating systems. For example, go out and try to buy a new IBM compatible PC without paying the windows tax, it is almost impossible unless you go to a small independent shop due to the licensing deals they have struck with the major OEMs.

Patents really don't bother the big guys, because at the end of the day they have enough of their own patents to license out that having to pay someone elses fees ends up being a wash overall.

The last big startup was probably Google and that is because that particular segment of technology was relatively patent free at the time. The big guys would have loved to quash Google with patents before it became a threat. Now Google is one of the big guys too and they don't want competition either.

Whoa....isn't that what courts are for? To negotiate when people can't find a middle ground? It's not that Microsoft won't negotiate...what is offered isn't fair. Yeah thanks for coming out. Thanks for understanding FRAND. Thanks for understanding the usefulness of standards. Thanks for understanding progress.

Actually, yes, it is.

Motorola sent the same opening offer to Microsoft is has sent to everyone. In fact, a legal case can be made that it MUST do so under FRAND -- otherwise, it would have privileged some companies over others, breaking the "non-discriminatory" part of it. That's the ND in FRAND, btw.

Then Microsoft did not reply and opened a lawsuit. Did Microsoft send a latter to Motorola saying "we'll pay 2 cents?" No, it didn't. It didn't ask Motorola for the terms it is asking the judge to impost on them.

Frand does not mean they can not set the rate... it means they have to offer licensing, and can not deny the ability to license the patents...

I for one think that the absolute refusal of both MS and Apple to even work on any realistic terms makes the 2.25% seem more reasonable than it would under other circumstances.

I think Microsoft has a point, though; Motorola would normally get $0.09 per Marvell chip, making their request for $4 or so per XBox or $2 per Windows license seem absurd.

Especially so if Microsoft had structured it as following:XBox + Windows without infringing patents = $0DLC pack for $5 to enable WiFi = $0.10DLC pack for $5 to enable H.264 = $0.10

So now Microsoft owes $0.20 to Motorola instead of $6?

Quote:

It is hard to really determine who is in the wrong here until we see what is uncovered in the courts... It could very well be that Moto offered a much more "reasonable" rate, but MS refused to pay anything... There needs to be consequences for companies that thumb their nose at patents they know they are using without permission.

There is no wrong. This isn't a morality play. Motorola wants to maximize the value of their patent portfolio because their smartphone business is crashing. Microsoft wants to minimize the value of their license fees to maximize their profits.

It's no different than haggling at a car dealership, excepting that Motorola may have done a few things illegal in trying to "double dip" since the HW was already licensed.

It is morally wrong to sell a device you know violates patents because you do not want to pay the rate... I am interested in seeing what information is released about the terms discussed between Moto and MS. This is where it will get interesting - I agree Moto may be attempting to double dip, BUT we will not really know until this stuff is in the open...

Well to avoid ban and let court to resolve that issue MS wanted to place a bond in case MS would be ordered to pay what Moto want. I don't know whether MS placed the bond after all, but it is courts job to judge who is right, not yours or mine.

I wonder how many patents Microsoft is paying licensing fees for to sell the Xbox360?

If it's more than 44, then MS could argue that they'd have to pay more than 100% of the revenue in licensing fees, if everyone licensed under the same terms as Motorola/Google

Maybe someone can correct me here. Wasn't Motorola's proposed 2.25% a starting point for negotiations? The initial offer price in negotiations is always higher than the ending price. Motorola almost certainly doesn't actually license under those terms; that's where they start negotiations. As I understand the facts of this case (and again, if I'm mistaken about the facts, sources that show how I'm wrong would be appreciated), Motorola gave an initial offer to Microsoft to start negotiations, and instead of participating in negotiations, Microsoft sued Motorola. If Microsoft had actually participated in negotiations, I would probably side with Microsoft here. But it doesn't seem to me that a lawsuit is appropriate without first trying to get a license on reasonable terms through negotiations.

Additionally, I thought that the "percent of final device cost" royalty for patents was pretty absurd of Motorola, until I realized that other companies with FRAND patents do exactly the same thing. I still think it's a little unreasonable, but it's common industry practice - hard to fault Motorola for it.

There's speculation that Apple's attitude might have been precipitated by Motorola pointing out that, the same contract that said it must license it's patents in FRAND also said the licensee (ie, Apple) must *reciprocate* licensing.

Citation?

Citation on what? That Apple must reciprocate? It's part of IEEE rules, go read them. Or go read the court notes for that case: the judge himself calls attention to the lawyers to that.

Citation on that there's speculation? Go read groklaw, where this is speculated.

Citation on whether Apple jumped out because of that clause? Go read what I wrote, in which I indicated it's an speculation, which naturally precludes citations.

Whoa....isn't that what courts are for? To negotiate when people can't find a middle ground? It's not that Microsoft won't negotiate...what is offered isn't fair. Yeah thanks for coming out. Thanks for understanding FRAND. Thanks for understanding the usefulness of standards. Thanks for understanding progress.

It is a shakedown.

Not in this situation. The ITC has a special mediation program specifically for issues with FRAND pricing. Microsoft has not used this. Microsoft decided instead to jump straight to suing.

Same for Apple, apparently. Which is why their lawsuit against Samsung got wasted.

Whoa....isn't that what courts are for? To negotiate when people can't find a middle ground? It's not that Microsoft won't negotiate...what is offered isn't fair. Yeah thanks for coming out. Thanks for understanding FRAND. Thanks for understanding the usefulness of standards. Thanks for understanding progress.

Actually, yes, it is.

Motorola sent the same opening offer to Microsoft is has sent to everyone. In fact, a legal case can be made that it MUST do so under FRAND -- otherwise, it would have privileged some companies over others, breaking the "non-discriminatory" part of it. That's the ND in FRAND, btw.

Then Microsoft did not reply and opened a lawsuit. Did Microsoft send a latter to Motorola saying "we'll pay 2 cents?" No, it didn't. It didn't ask Motorola for the terms it is asking the judge to impost on them.

Does that sound like it negotiated?

Here I will repeat what the article says.

Despite its argument that Motorola’s patents are barely relevant to Windows and Xbox, Microsoft is offering to pay $1.21 million to cover license fees for the year 2012. In coming up with its estimate, Microsoft points to the prices charged by the MPEG LA patent pool and the Via Licensing Corporation patent pool covering 802.11 patents, which includes a handful of companies including NTT and LG. Microsoft also notes the $3 to $4 price for Marvell chips while arguing that Motorola's attempt to calculate a royalty based on the entire price of an Xbox is unreasonable.

Microsoft proposes paying Motorola $474,000 for its H.264 patents and $736,231 for its wireless patents. “For 2012, Microsoft has paid $13 million in royalties to the MPEG LA H.264 pool,” Microsoft says. “If Motorola were a licensor in the MPEG LA H.264 pool, Motorola’s share of the 2012 pool royalties paid by Microsoft would have been $474,000.”

Despite its argument that Motorola’s patents are barely relevant to Windows and Xbox, Microsoft is offering to pay $1.21 million to cover license fees for the year 2012. In coming up with its estimate, Microsoft points to the prices charged by the MPEG LA patent pool and the Via Licensing Corporation patent pool covering 802.11 patents, which includes a handful of companies including NTT and LG. Microsoft also notes the $3 to $4 price for Marvell chips while arguing that Motorola's attempt to calculate a royalty based on the entire price of an Xbox is unreasonable.

Microsoft proposes paying Motorola $474,000 for its H.264 patents and $736,231 for its wireless patents. “For 2012, Microsoft has paid $13 million in royalties to the MPEG LA H.264 pool,” Microsoft says. “If Motorola were a licensor in the MPEG LA H.264 pool, Motorola’s share of the 2012 pool royalties paid by Microsoft would have been $474,000.”

Why don't you quote the court notes instead? There's a bunch of them publicly available, and groklaw has been covering this case, so you can get all publicly available notes from that site.

You skipped the part that the article says this is Microsoft's arguments TO THE COURT. It never made a counter offer to Motorola, and the court notes indicate that -- if Motorola was lying about it, it would be trivially subject to perjury laws. Did Microsoft deny that allegation? No. It accepted it. It confirmed that it never entered negotiations to a court of law.

Despite its argument that Motorola’s patents are barely relevant to Windows and Xbox, Microsoft is offering to pay $1.21 million to cover license fees for the year 2012. In coming up with its estimate, Microsoft points to the prices charged by the MPEG LA patent pool and the Via Licensing Corporation patent pool covering 802.11 patents, which includes a handful of companies including NTT and LG. Microsoft also notes the $3 to $4 price for Marvell chips while arguing that Motorola's attempt to calculate a royalty based on the entire price of an Xbox is unreasonable.

Microsoft proposes paying Motorola $474,000 for its H.264 patents and $736,231 for its wireless patents. “For 2012, Microsoft has paid $13 million in royalties to the MPEG LA H.264 pool,” Microsoft says. “If Motorola were a licensor in the MPEG LA H.264 pool, Motorola’s share of the 2012 pool royalties paid by Microsoft would have been $474,000.”

Why don't you quote the court notes instead? There's a bunch of them publicly available, and groklaw has been covering this case, so you can get all publicly available notes from that site.

You skipped the part that the article says this is Microsoft's arguments TO THE COURT. It never made a counter offer to Motorola, and the court notes indicate that -- if Motorola was lying about it, it would be trivially subject to perjury laws. Did Microsoft deny that allegation? No. It accepted it. It confirmed that it never entered negotiations to a court of law.

There's speculation that Apple's attitude might have been precipitated by Motorola pointing out that, the same contract that said it must license it's patents in FRAND also said the licensee (ie, Apple) must *reciprocate* licensing.

Citation?

Citation on what? That Apple must reciprocate? It's part of IEEE rules, go read them. Or go read the court notes for that case: the judge himself calls attention to the lawyers to that.

Citation on that there's speculation? Go read groklaw, where this is speculated.

Citation on whether Apple jumped out because of that clause? Go read what I wrote, in which I indicated it's an speculation, which naturally precludes citations.

Oh, I have read about FRAND terms, have you?

You are saying is about speculation about negotiations might be about other patents? You statements doesn't have any bearing. There is NO requirement for reciprocation under FRAND.

You are saying is about speculation about negotiations might be about other patents? You statements doesn't have any bearing. There is NO requirement for reciprocation under FRAND.

I'm sorry, you're mistaken.

Apple v. Motorola Judge wrote:

Motorola’s contracts with ETSI and IEEE placed the burden of fair and nondiscriminatory licensing on Motorola, not on potential licensees. As Judge Posner explained, Motorola received an important benefit from the agreements by having its intellectual property rights incorporated into standards. Apple, Inc., 2012 WL 2376664, at *12 (“Motorola agreed to license its standards-essential patents on FRAND terms as a quid pro quo for their being declared essential to the standard.”).All that being said, Motorola raises an issue in its response to Apple’s motion in limine to which neither party has given much attention in this case. Motorola points out that under ETSI’s Intellectual Property Rights policies, it was entitled to condition its license offer to Apple on receiving a reciprocal license for Apple’s standards-essential patents. The provision at issue states that members’ commitments to license standards-essential patents on fair, reasonable and nondiscriminatory terms “may be made subject to the condition that those who seek licenses agree to reciprocate.” Dkt. #288-3, Annex 6: ETSI Intellectual Property Rights Policy § 6.1.

This provision does not change my conclusion that Judge Posner’s decision is entitled to preclusive effect on the issue whether Apple was required to make counteroffers and negotiate with respect to Motorola’s 2.25% offer as a condition to Motorola’s offering a fair, reasonable and nondiscriminatory license. However, this provision does suggest that Motorola cannot be found to have made an unreasonable or discriminatory offer simply because it demanded that Apple provide a reciprocal license to Apple’s standards-essential patents. Additionally, this provision suggests that Apple may have been required to engage in licensing negotiations related to its own patents. In other words, evidence that Apple refused to provide a license to its own patents or refused to engage in negotiations related to its own patents would be relevant to whether Motorola breached its contract with ETSI. Neither party has provided evidence or argument on this issue, so I cannot determine the significance of this provision at this stage. The parties should be prepared to address this issue at trial.

There's speculation that Apple's attitude might have been precipitated by Motorola pointing out that, the same contract that said it must license it's patents in FRAND also said the licensee (ie, Apple) must *reciprocate* licensing.

Citation?

Citation on what? That Apple must reciprocate? It's part of IEEE rules, go read them. Or go read the court notes for that case: the judge himself calls attention to the lawyers to that.

Citation on that there's speculation? Go read groklaw, where this is speculated.

Citation on whether Apple jumped out because of that clause? Go read what I wrote, in which I indicated it's an speculation, which naturally precludes citations.

Oh, I have read about FRAND terms, have you?

You are saying is about speculation about negotiations might be about other patents? You statements doesn't have any bearing. There is NO requirement for reciprocation under FRAND.

I have made one mistake, in that I attributed to IEEE an ETSI rule. They produce these standards in collaboration, however.

The above undertaking may be made subject to the condition that those who seek licencesagree to reciprocate.

Now I'll quote the judge's order on the dismissed case. Note that this is part of the justification for dismissal:

Quote:

Motorola points out that under ETSI’s Intellectual Property Rights policies, it was entitled to condition its license offer to Apple on receiving a reciprocal license for Apple’s standards-essential patents. The provision at issue states that members’ commitments to license standards-essential patents on fair, reasonable and nondiscriminatory terms “may be made subject to the condition that those who seek licenses agree to reciprocate.” Dkt. #288-3, Annex 6: ETSI Intellectual Property Rights Policy § 6.1.

Which part is the shakedown, where Microsoft tried to get a court to rule on something it's not supposed to be involved in (in multiple countries which it has been shot down in), or the part where Microsoft has refused to negotiate which is part of how FRAND negotiations are defined?

This isn't a patent shakedown, you're just full of misdirection and misinformation. Thy can set whatever price for the patents they want - and guess what? 2.25% is LESS than the $40 apple wants or the $12-20 that Microsoft wants.

Here is the thing :When Motorola and others decided to put their patented inventions together, to form a standard, they were selling a promise of fairness to the rest of the technology world, ensuring that almost nobody would still research competing solutions in order to protect themselves from possible infringement lawsuits. This is beneficial to Motorola and others involved in the standard as they need not fear more competition on these technologies, and start receiving a constant stream of money.

So everybody started adopting the tech as standard, then Motorola pulls a couple more patents out of a bag and say those are essential to the implementation of the standard and deserve a separate remuneration.

This is bad for the entire industry since it puts all future standards in danger of being viewed as honey traps, that won't ensure fair treatment and protection if implemented, so big groups could start creating their own proprietary implementation of features meaning less inter compatibility, increased devices cost, and reduced pace of innovation (since everybody has to come up with its own version of an invention a big chunk of R&D would be associated to feature parity with competitors).